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QTPA Member Alert | Global Economic Developments (15/10/2012)

Ai Group Economics Weekly 12 October 2012

Global Economic Developments

Thought you may be interested in the world around us and how Australia is affected.

This week the International Monetary Fund (IMF) released three reports of note for the global outlook.

First, in its latest half-yearly World Economic Outlook, the IMF downgraded its global growth projections to 3.3% for 2012 (from 3.5% in April) and 3.6% for 2013 (from 3.9% in April). The IMF noted that the outlook has become more uncertain through 2012 due to the ongoing fiscal problems in Europe, the failure of the US to accelerate its recovery and deceleration across key Asian economies. It concludes that the risks for a serious global slowdown are alarmingly high”. The IMF still regards Australia’s position in this scenario as better than most developed economies, but certainly not immune to these rising global risks. Accordingly, the IMF downgraded its growth outlook for Australia in 2013 to 3.0% (previously 3.5%). It left its expectation for Australian growth in 2012 broadly unchanged at 3.3% p.a.


Second, in its Global Financial Stability Report for October, the IMF concluded that, relative to its last assessment six months ago, global financial markets and sovereign fiscal positions face increased risks, “with the euro area crisis the principal source of concern. … In both Japan and the United States, steps are needed toward medium-term fiscal adjustment. Emerging market economies have successfully navigated global shocks thus far, but need to guard against future shocks while managing a slowdown in growth. … crisis intervention methods are still in use in a number of economies, delaying the movement of the [global] financial system onto a safer path.”

Lastly, the IMF rounded out its increasingly gloomy outlook by forecasting a further large increase in the cost of natural disasters around the world. The IMF found that over the past two years alone, 700 natural disasters affected more than 450 million people worldwide. This included the Queensland floods and the Japanese tsunami in 2011. Japan’s 2011 disaster had estimated direct economic cost of 16.9 trillion yen ($210 billion), equivalent to 3.6 % of Japan’s GDP in 2011. The Japanese government has already allocated 18 trillion yen (3.8 % of GDP) to reconstruction. Globally, the IMF estimates that economic damage due to natural disasters has risen from an estimated $20 billion on average per year in the 1990s, to about $100 billion per year in the 2000’s. Of most concern the IMF states that “this upward trend is expected to continue as a result of the rising concentration of people living in areas more exposed to natural disasters, and climate change.”


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